The main idol of the Goddess is said to have been established by Adi Shankaracharya dating back to the 8th century. There is a legend behind the foundation of this temple. As per the legend, two demon kings, Shumbha and Nishumbha captured the kingdom of Lord Indra. Due to the reason, all the Gods were thrown out from the heaven. At that time, Chandi Devi emerged from the power of Goddess Parvati to slaughter the demon kings. The Goddess is believed to have taken rest at this place for some time, since that time the place is considered sacred.

Chandi Devi Temple is known as one of the Siddha Peethas (Holy Places where one's wishes are fulfilled) together with Mansa Devi and Maya Devi of Haridwar. It is said that Goddess Chandi fulfills all the wishes of her true devotees.